Centamin to Boost Egypt Production as It Files Sukari Appeal

By Nadine Marroushi -
Nov 8, 2012

Centamin Plc (CEY) will continue to invest
in Egypt to increase gold production as the company appeals a
preliminary court verdict last week that annulled its 18-year-
old concession agreement with the government.

Centamin will invest $150 million in the Sukari gold mine
in 2013 in the final part of a four-phase investment program,
the company’s chairman Josef El-Raghy said in a telephone
interview today. It produced 202,968 ounces of gold in 2011 and
expects production to increase to 250,000 ounces by the end of
2012, he said.

The company’s London-listed shares plunged as much as 59
percent on Oct. 30 when the verdict came out, the most on
record. It recovered after Centamin and its joint venture
partner, the state-owned Egyptian Mineral Resources Authority,
said they would appeal the decision. The case is one of several
legal challenges attempting to overturn asset sales by the
government of ousted President Hosni Mubarak.

“The message is we are continuing to invest in Egypt at a
time when foreign direct investment has fallen in the post-
revolution period,” Raghy said. “We have created an industry
in the desert where there was nothing.” The company directly
employs 1,200 people, he said.

Egypt’s share of profits from the 50-50 joint venture will
begin next year, when Centamin will have recovered the $1
billion of investment it has put into the mine since 1994, Raghy
said. The government has so far earned its share of production
through a 3 percent annual royalty fee, payroll tax, income tax
and national insurance contributions. Its earnings were $20
million at the end of 2011. As costs are recovered by the second
half of 2013, its 50 percent share of profits is expected to
reach $150-200 million per year, Raghy said.

Concession Annulment

The annulment verdict said the EMRA didn’t exercise enough
oversight on gold extraction at the mine and that the state
authority should “rectify” the violations, which include
receiving too low a share of profits and fuel subsidies. Raghy
said the company stopped receiving fuel subsidies in February
2012, adding $40 million to its operating costs.

Hamdy El Fakharany, a lawmaker in the now-dissolved
parliament, filed the case on the grounds that the concession
was not approved by parliament. Centamin says the agreement was
approved, and that the court didn’t receive a copy of a 2005
contract signed with the then-oil minister giving it operational
rights in an additional 160-square-kilometer area. The EMRA and
Centamin will present this document in the appeal, Egypt’s Oil
Minister Osama Kamal said in an interview last week.